The Office of Federal Housing Enterprise Oversight has directed Fannie Mae and Freddie Mac to comply with the federal banking regulators' nontraditional mortgage guidance when purchasing and securitizing interest-only and payment-option mortgages.The two housing government-sponsored enterprises are expected to take immediate action and develop policies that are consistent with the bank regulators' underwriting guidance on nontraditional mortgages and report back to OFHEO by Feb. 28. "Adoption of this guidance by the two housing GSEs should serve to enhance the overall level of underwriting standards, risk management practices and consumer protection throughout the mortgage market," OFHEO Director James Lockhart says in separate letters to the top executives of Fannie Mae and Freddie Mac. It is understood that the guidance also extends to the GSEs' purchases of private-label securitizations that contain IO and option adjustable-rate mortgages. A company spokesman said Freddie Mac is reviewing OFHEO's letter and had no further comment. Fannie said it supports prudent lending practices and will be talking to its customers to help understand the impact of the guidance. "We believe we will be able to respond fully to OFHEO by Feb. 28, 2007," a spokesman said.

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